Whether delay in informing the insurance company is a ground to repudiate insurance claim?

Background

Insurance is an essential part of financial planning for both individuals and organizations as it provides protection against unanticipated risks and losses. The layman in our country is most concerned for the security of property owned by him or for his health and therefore relies on insurance as a protection from such unfortunate events.   However, there are occasions when the filing and processing of insurance claims can be complicated, especially when it comes to meeting the policy’s contractual requirements, which include notifying the insurance company of losses in a timely manner.

The denial of insurance claims as a result of late notification of a loss to the insurance company is one of the major problems that customers frequently encounter. Policies for insurance usually contain provisions requiring policyholders to promptly contact the insurer following an incident that might give rise to a claim. Policyholders bear the risk of having their claims denied if they do not notify their insurance provider about the damages suffered  as soon as possible which prevents policyholders from receiving the much need financial support.

While it is important for the insurance companies to know about the damage suffered at the earliest possible, it is also crucial to acknowledge that this might not always be possible due to a variety of reasons like the consumers feeling lost or confused after such loss, difficulty in understanding the contractual terms, technicality in claim procedure.

Moreover, insurance companies may interpret and enforce notice terms differently, which can result in differences in the way claims are handled. Some insurers might be forgiving and take into account exceptional situations for late notifications, but others might strictly enforce the provisions of the policy, which would lead to claim denials regardless of the situation.

Policyholders may suffer serious repercussions if a claim is repudiated as a result of delayed intimation. Unexpected financial obligations can be placed upon them, and they might not be able to get over losses they thought were covered by their insurance. Such incidents have the potential to reduce public confidence in insurance companies and diminish the usefulness of insurance as a risk management strategy.

The issue is further made worse by the absence of uniform rules or principles controlling how delayed notifications are handled. Without precise rules, insurance firms have a great deal of discretion when deciding whether to approve or deny claims based on when they are notified, which could have an unfair effect on policyholders.

Examining the effect of delayed notification on insurance claim repudiation is crucial given these difficulties. This research aims to shed light on this important issue and advocate for fair and equitable treatment of consumers in the insurance claims process by examining the underlying factors that contribute to delays, assessing the practices of insurance companies in handling such cases and the view of law over this issue.

Are MSMEs always the victim under the Competition Law? Understanding the not-so-common perspective

Current Position of Law

Although insurance policies usually require prompt notification of losses to the insurer, courts have recognized that strict enforcement of these notification clauses can result in unfair outcomes for policyholders, particularly when delays are caused by legitimate circumstances beyond their control. For these reasons, the current legal position regarding the issue of insurance claim repudiation due to delayed notification reflects a nuanced understanding of the circumstances surrounding such delays.

In the landmark case of Ashok Kumar v. New India Assurance Co Ltd.,[1] the Supreme court stressed that a claim should not be denied based only on a delay in notifying the insurance company of a loss, particularly if the insured reported the incident to the authorities promptly and further inquiries confirmed the validity of the claim. This decision emphasizes how crucial it is to take into account the larger context and circumstances surrounding the delay before rejecting a claim.

Similarly, the Supreme court in Gurshinder Singh v. Shriram General Insurance Co.[2] reaffirmed that the prompt filing of a First Information Report (FIR) in connection with the loss, along with efforts to aid law enforcement in tracking down the misplaced property, should be regarded as definitive evidence of the validity of the claim, which should be substantially relied upon while awarding the claim and not merely on the time frame in which the incident was intimated to the insurance company. The court underlined the importance of fairness and reasonableness in assessing legitimate claims and advised against adopting an overly technical perspective.

In yet another case, of Om Prakash v. Reliance General Insurance Company Ltd,[3] the Supreme Court observed that efforts to locate misplaced property or other unforeseen events may cause delays in informing insurers. It underlined the need for a liberal interpretation of consumer protection rules to ensure equitable treatment of policyholders and cautioned that rejecting claims based only on technical reasons would erode consumer confidence in the insurance business.

In the case of  Trikol Singh v. Manager, Cholamandalam MS General Insurance co. ltd. &  Others. [4] the Supreme Court held that “when an insured has lodged the FIR immediately after the theft of a vehicle occurred and when the police after investigation have lodged a final report after the vehicle was not traced and when the surveyors/investigators appointed by the insurance company have found the claim of the theft to be genuine, then mere delay in intimating the insurance company about the occurrence of the theft cannot be a ground to deny the claim of the insured.”

In conclusion, the current legal position on insurance claim repudiation owing to delayed notice emphasizes a fair and reasonable approach to claim adjudication, taking into account the circumstances leading up to the delay. Courts have issued warnings against strict execution of notification terms and emphasized the necessity for insurers to support policyholder interests and preserve consumer confidence in the insurance business by ensuring that claim repudiations are based on reasonable and valid grounds.

Analysis

These cases shed light on how consumer protection, technicalities in insurance contracts, insurance legislation, and the real-world difficulties policyholders encounter when seeking insurance claims.

The mentioned court cases show a common pattern in which insurance companies try to reject claims on the basis of intimation delays alone, even when the claims are legitimate. Judges have frequently found in favour of policyholders, highlighting the fact that a policyholder’s failure to notify the insurer promptly should not be an excuse for rejecting legitimate claims. This emphasizes how crucial it is to take into account the events leading up to the delay and make sure policyholders are treated fairly.

The analysis takes into account the realistic expectations that arise after an insured incident, like property damage or theft. Policyholders are required to assist law enforcement agencies, including quickly submitting police reports, as this provides supporting documentation for insurance claims. This recognition of the normal course of events following a loss offers context for assessing the propriety of claim notification delays.

Courts have stressed the importance of investigators’ findings in assessing the veracity of claims. Insurance companies shouldn’t automatically deny claims based just on procedural reasons if an investigation supports the claim even though there was a delay in notifying the insurance company. This emphasizes the importance of insurers to make their choices on claims on real information rather than petty details.

The analysis emphasizes the significance of striking a balance between contractual responsibilities and fairness, even as it acknowledges insurers’ justifiable need for prompt claim notice to support post-claim operations including investigation and loss assessment. When denying claims, insurers need to use good judgment, weighing the merits of each instance and avoiding making sweeping rejections based only on technicalities.

All things considered, the article emphasizes how important it is for insurers to have a more sophisticated and customer-focused approach to handling claims, taking into account the real-world difficulties that policyholders encounter and giving equal and fair results priority. It also highlights how important it is for regulatory agencies to uphold consumer protection legislation and encourage accountability and openness in the insurance sector.

The Competition (Amendment) Act, 2023: Implications for Mergers and Acquisitions

Conclusion

In handling insurance claims, the insurance companies should look at the issue from a consumer’s perspective and try to understand the problems faced by the layman. The Insurer’s should understand the urgency of the situation and try to avoid blanket claim denials based solely on technicalities. In order to protect policyholder interests and preserve public confidence in the insurance industry, insurers, regulators, and legislators must work together to overcome the complications surrounding delayed notice and insurance claim repudiation. A fair and equitable claims settlement procedure that ultimately benefits insurers and policyholders alike can only be accomplished via such coordinated efforts.

This article is authored by Ms. Vaishnavi Sharma, student at Institute of Law Nirma University, Ahmedabad.

[1] (2024) 1 SCC 357

[2] AIR 2020 SUPREME COURT 1395.

[3] AIR 2017 SUPREME COURT 4836.

[4] CIVIL APPEAL NO. 4530 OF 2023 (Arising out of SLP(C) No. 24923 of 2018)